Question

James Company began the month of October with inventory of $28,000. The following inventory transactions occurred during the month: The company purchased merchandise on account for $41,500 on October 12. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $630 were paid in cash. On October 31, James paid for the merchandise purchased on October 12. During October merchandise costing $19,950 was sold on account for $30,600. It was determined that inventory on hand at the end of October cost $49,350.

Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions.

Answer 1

James Company engaged in several inventory-related transactions throughout October. Journal entries are made for the purchase of merchandise, payment of freight charges, payment for merchandise, and sale of merchandise, all using a perpetual inventory system. The ending inventory is recorded at $49,350, in accordance with the perpetual system.

Step-by-step explanation:

Journal Entries for James Company's Inventory Transactions

James Company initiated October with an inventory balance of $28,000. Throughout October, various inventory transactions took place, and since James Company uses a perpetual inventory system, we need to record each transaction as it occurs. Below are the required journal entries based on the company’s activities:

Purchase of Merchandise (October 12): The company purchased merchandise worth $41,500 on account with payment terms of 2/10, n/30, and used the net method for purchase discounts.

Freight Charges (Shipping Point): Freight charges of $630 were paid in cash.

Payment for Merchandise (October 31): James paid the accounts payable on the last day of the month.

Sale of Merchandise: Merchandise with a cost of $19,950 was sold on account for $30,600.

The ending inventory is stated at $49,350, and no additional entry is required as the company uses a perpetual system. This balance should match the physical count and any discrepancies should be investigated further.